2015 (11) TMI 860 - AT - Income Tax

TDS u/s 194H - sale of SIM cards - assessee has not deducted TDS on discount/commission allowed to distributors - Held that - There is no dispute that initially, the issue was decided against the assessee in Commissioner of Income Tax-XVII Versus Idea Cellular Ltd. 2010 (2) TMI 24 - DELHI HIGH COURT by holding that service can be rendered and cannot be sold and therefore, the payment to distributors, who are acting as a link in the chain of service provider, cannot be a discount but the same is in the nature of commission. However, subsequently, the Hon ble jurisdictional High Court in its decision reported in Bharti Airtel Ltd. And Others Versus Deputy Commissioner of Income-tax and Commissioner of Income Tax, Bangalore (2014 (12) TMI 642 - KARNATAKA HIGH COURT) has distinguished the finding of the Hon ble Delhi High Court wherein held that the condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor the income accrued or belonging to the distributor should be in the hands of the assessees - the assessee sells SIM cards to the distributor and allows a discount of ₹ 20/-, that ₹ 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer - The profit earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share ₹ 20/- which is allowed as discount by the assessee to the distributor - There is no relationship between the assessee and the sub-distributor as well as the retailer. Thus, it is a sale of right to service - The relationship between the assessee and the distributor is that of principal to principal and, therefore, when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is not under any obligation to pay any tax as no income is generated in his hands - The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS - the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent thus, the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. - Decided in favour of assessee Also roaming charges cannot be treated as fees for technical services, the ground raised by the revenue stands dismissed. - Decided in favour of assessee

Summary

Issues Involved:
1. Non-deduction of TDS on discount/commission allowed to distributors under Section 194H.
2. Non-deduction of TDS on inter-operator/national roaming charges under Section 194J.
3. Validity of the order passed under Section 201(1) after the expiry of two years.
4. Levy of interest under Section 201(1A).

Issue-wise Detailed Analysis:

1. Non-deduction of TDS on Discount/Commission Allowed to Distributors under Section 194H:
The Assessing Officer (AO) held that the discount given to distributors for pre-paid services is in the nature of commission and thus subject to TDS under Section 194H. The CIT(A) confirmed this view, treating the assessee as 'assessee in default' under Section 201(1). However, the assessee argued that the relationship between the assessee and the distributors is on a principal-to-principal basis, not principal-agent, and thus the discount should not be treated as commission. The Tribunal referred to the judgment of the Hon'ble jurisdictional High Court in the case of Bharti Airtel Ltd., where it was held that the right to service can be sold and the relationship between the assessee and the distributors is that of principal to principal. Therefore, the Tribunal set aside the AO's order for fresh consideration in light of this judgment.

2. Non-deduction of TDS on Inter-operator/National Roaming Charges under Section 194J:
The AO treated the roaming charges paid to other telecom operators as fees for technical services, thus subject to TDS under Section 194J. The CIT(A) partially agreed but provided relief for international roaming charges. The assessee contended that roaming services do not involve human intervention and thus do not qualify as technical services. The Tribunal cited the Hon'ble Supreme Court's direction in CIT vs. Bharti Cellular Ltd. to examine technical aspects and expert opinions. Referring to the Jaipur Bench's decision in Bharti Hexacom Ltd., which found no human intervention in roaming services, the Tribunal concluded that roaming charges are not fees for technical services and thus not subject to TDS under Section 194J.

3. Validity of the Order Passed under Section 201(1) After the Expiry of Two Years:
The assessee argued that the order passed by the AO under Section 201(1) was time-barred as it was issued after two years from the end of the financial year in which the e-TDS statement was filed. However, since the Tribunal decided the main issues on merits in favor of the assessee, this issue became academic and was not further adjudicated.

4. Levy of Interest under Section 201(1A):
The CIT(A) upheld the levy of interest under Section 201(1A) for non-deduction of TDS. However, since the Tribunal ruled that the assessee was not liable for TDS on the discount allowed to distributors and roaming charges, the consequential levy of interest under Section 201(1A) was also set aside.

Conclusion:
The Tribunal allowed the appeals of the assessee in part, ruling that the discount allowed to distributors is not commission and roaming charges are not fees for technical services, thus not subject to TDS. The appeals of the revenue were dismissed. The case was remitted back to the AO for fresh consideration in light of the jurisdictional High Court's judgment. The order was pronounced in the open court on 06th November 2015.